The insurance industry in Hong Kong has given general support to a risk-based capital (RBC) framework, according to the Commissioner of Insurance, Mr John Leung, who revealed this following industry consultations on the issue.
In a statement, Mr Leung said: “The proposed framework will help make capital requirements more sensitive to the level of risk that insurance companies are bearing. It also enhances the corporate governance and risk management of insurance companies.
“While there is general agreement on the high level principles of the conceptual framework, there are mixed views on some of the technical aspects and details which will be handled in the next phase of the project.”
Quantitative and qualitative aspects and disclosure
The RBC framework comprises requirements for quantitative aspects, qualitative aspects and disclosure.
In respect of quantitative requirements, respondents generally support the proposals, including the establishment of two solvency control levels, the broad risk categories identified and the approaches for risk assessment. Further consideration will be given to assessment methodologies during the next phase of the project.
In respect of qualitative requirements, respondents support the proposed requirements relating to enterprise risk management (ERM) and own risk and solvency assessment (ORSA). ERM requirements will be introduced in phases while ORSA requirements, which should be supported by quantitative analysis, would be developed in conjunction with quantitative requirements. Respondents also support the proposed disclosure requirements, which will be further considered during the next phase of the project.
To develop detailed rules, conduct studies and another round of consultation
Taking into account the comments received, the Insurance Authority will proceed with the next phase of the project, which involves developing detailed rules as well as conducting quantitative impact studies, to be followed by another round of consultation.
The Insurance Authority in Hong Kong had published its first consultation paper on the development of the RBC framework for the insurance industry in September 2014.